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The Latest Investment Trend? The Rapid Emergence of 401(k) Millionaires

401(k) millionaires have doubled in number since 2012, and there’s no slowing down in sight.

Most of us don't think about saving for retirement on a daily basis. We have it on automatic pilot in our workplace 401(k) plans in which our employers match a portion of our contributions. We're now learning that more of us baby boomers are becoming 401(k) millionaires, and we don't have to be making $1 million a year to save $1 million for our retirement.

Fidelity Investments says the number of 401(k) millionaires in its plans now stands at 70,000, double what it was back in 2012. Baby boomers are putting more money into their 401(k)s.

"Granted it's small when you look at our overall 401(k) base, but we like to see the things trending upward," said Fidelity spokesman Mike Shamrell. "The one thing we want to do is clear up a misconception that there are a lot of people who think you can only get to that level is if you have all sorts of stock from your employer. We found that's not true. It doesn't take all these stock options in your 401(k) to reach that level."

So how to do become a 401(k) millionaire? Jeanne Thompson, a vice president at Fidelity Investments, says you can become one even if you make less than $150,000 a year.

The average age of the 401(k) millionaire studied by Fidelity over 12 years is 59, and they're someone who has worked for their company for more than 30 years and earned less than $150,000 a year, Thompson says.

There are five reasons for their success, Thompson says.

Saving earlyThompson says that's an obvious reason that the longer you save the more you'll have at retirement. What helps it along is that your money has a chance to grow to higher levels because of favorable tax treatments in a retirement account since you don't pay until after you make withdrawals, she says. And if you do a Roth 401(k), you pay the taxes up front and all of your investment income earned is tax free, she says.

Contribute 10% to 15%While Thompson says that sounds like a lot to people, that also includes contributions from your employer as well. Fidelity's 401(k) millionaires had an average company contribution of 5 percent, she says. In addition, those millionaires deferred about 14 percent of their pay over the 12 years they were studied, amounting to $13,300 a year. That made their total savings rate 19 percent, Thompson says. IRS rules allowed people to differ up to $17,500 of their pay in a 401(k) account in 2014 and as much as $23,000 if you were 50 and older, she says.

Meet your employer matchThompson says it's a cliche, but people are turning down free money. When it comes to the millionaires, 28 percent in their account came from the employer and that boosted annual savings by nearly $4,600, she says. Many of the millionaires also benefited from profit-sharing contributions, she says.

Consider mutual funds that invest in stocksThe 401(k) millionaires had an average of 75 percent of their assets in company stock and stock mutual funds, Thompson says. They had a median return of 4.8 percent over 12 years. Coupled with the contributions of themselves and their employers, their account grew 8.75 percent a year. Thompson warns people, however, that holding 75 percent of their retirement savings in stocks may not be a sound financial strategy for everyone because of their volatility and your risk tolerance and investment horizon. It's important to be diversified, she says.

Don't cash out when changing jobsThompson says you face tax liability early withdrawal penalties. You also lose the growth opportunity from that money, she says.

"Even if you're early in your career and your balance is relatively small, it's usually a better idea to keep your 401(k) savings with your old employer, or transfer your 401(k) to your new employer's plan or into a rollover IRA," Thompson says.

Since the average tenure of the 401(k) millionaires with their current employer was 34 years, most of them didn't cash out, Thompson says.

Thompson says that although this is a strategy people can take to accumulate $1 million in their 401(k), people don't need to be frustrated if they don't reach that amount. Not everyone needs a $1 million balance while some need more, she says.